Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), announced on Aug 8 that the repo rate is steady at 6.5%. This decision was made by the six-member Monetary Policy Committee (MPC), chaired by Das.
The announcement followed a three-day review period for the MPC, which began on Aug 6. This was the first meeting of the committee since Union Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2024-25 in July.
The MPC is composed of three members from the RBI and three external experts. In their recent meeting, the members voted 4:2 to keep the repo rate unchanged.
This rate has remained the same since the committee last adjusted it in February 2023.
"Inflation is broadly on the declining trajectory," Das said in the monetary policy statement.
He also highlighted that the global economic outlook shows steady, although somewhat uneven, expansion. The MPC has maintained its growth projection for the current financial year at 7.2%.
RBI Governor Das remarked that emerging technologies, particularly artificial intelligence (AI), present new challenges for the global economy.
Despite some expected slowdown from the previous fiscal year’s 8.2% growth, India is projected to continue being one of the fastest-growing major economies, assuming the 7.2% growth forecast is realized.
In stock markets, the stock indices reacted negatively to the announcement. On Aug 8, the Sensex dropped by 251.76 points, or 0.32%, closing at 79,216.25 points, while the Nifty fell by 83.80 points, or 0.34%, to 24,213.70 points.
Looking ahead, the RBI has scheduled future MPC meetings for Oct 7-9, Dec 4-6, and Feb 5-7, 2025.
Governor Das pointed out that inflation has been relatively stable. Retail inflation, which had risen to 5.08% year-on-year in June due to rising food prices, has remained below 5% since March and under 6% since September of the previous year.
The Consumer Price Index (CPI)-based inflation has stayed within the RBI's target range of 2–6% for the past ten months.
By keeping the repo rate at 6.5%, the RBI has ensured that all external benchmark lending rates (EBLRs), which are tied to the repo rate, will not rise.
This stability is beneficial for borrowers as it means their equated monthly installments (EMIs) will remain unchanged.
However, interest rates on loans linked to the marginal cost of funds-based lending rate (MCLR) might still increase, as the full transmission of the 250 basis points hike in the repo rate that occurred between May 2022 and February 2023 has not yet been fully realized.
The policy suggests:
- Home Loans: Interest rates on home loans tied to the repo rate will remain unchanged, so EMIs for existing home loans will not increase.
- Auto Loans: Auto loans linked to the repo rate will not see any change in their interest rates.
- Personal Loans: EMIs for personal loans tied to the repo rate will also stay the same.
- New Borrowers: Individuals looking to take out new loans can expect the interest rates to remain consistent with current levels.
Overall, the RBI's decision to keep the repo rate steady is intended to prevent an increase in borrowing costs, which can help stimulate spending and investment.
Radhika Rao, the senior economist of DBS Bank, said, “Policy guidance reinforced that domestic considerations will be prioritized, despite a sharp buildup in rate cut pricing for the US Fed.”
“The RBI MPC retained its cautious tone on inflation in the face of an anticipated passthrough from perishables price pressures and tariff adjustments. With domestic demand conditions calling for a focus on inflation, we expect the policy rate to stay on hold for the rest of the year,” she added.
Adhil Shetty, the CEO of Bankbazaar.com, said that with inflation remaining above the RBI’s target levels and food prices still on the higher side, along with global uncertainty due to tensions in the Middle East, the Monetary Policy Committee of the apex bank has kept the repo rate unchanged at 6.5% for the ninth consecutive time.
“The average weighted rate on new loans is now at a one-year low of 9.32%. Average weighted rates on new term deposits are also softening and are at 6.46% in the latest data,” he said.
“The data is trending in the right direction, but the governor rightly points out that there’s divergence in these trends. Some central banks are seen softening their policies while others are tightening theirs. Fuel price is trending lower, but food price remains volatile in India,” he added.
Pradeep Aggarwal, the founder and chairman of Signature Global (India) Ltd, said, “The RBI’s decision to keep rates unchanged is on expected lines with an intention to keep inflation under check.”
“While the RBI is focused on reining in inflation within its target limit, the expectation of a good monsoon may prompt the apex bank to lower interest rates in the subsequent months, thereby further propelling real estate sales momentum and also providing an opportunity to prospective homebuyers to enter the market,” he continued.
